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Bus 251D1(12-1)HomeworkSolutions

Bus 251D1(12-1)HomeworkSolutions - Beedie School of...

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Beedie School of Business Simon Fraser University Bus 251 D1 (12-1) Solution to Homework Questions 1-39 a. Call Of The Wild Ltd. Statement of Earnings For the month of July, 2xxx Revenue from excursions $ 171,430 Employee Wages $ 49,860 Advertising 14,610 Supplies Expense 25,629 Gas & Repairs Expense 3,460 Telephone & Electricity 1,532 Total expenses 95,091 Net income $ 76,339 b. Other costs Michelle might have incurred in July that were not listed above could include: 1. Depreciation of tents and rafting equipment 2. Income taxes (as the company is profitable) 3. Interest paid on any outstanding loans 4. Insurance for the vehicles 5. Other employee benefit costs such as employer portion of CPP and EI 1-42 a. Item Classification Bank loan owed to bank Liability Supplies on hand Asset Cash in bank accounts Asset Common shares Shareholders’ equity Cost of tents and rafts Asset Retained earnings Shareholders’ equity Amount prepaid by customers for August trips Liability (Note 1) Vehicles Asset Note 1: The company has received cash from these customers, and now OWES the customers the experience of the trip that has been prepaid for. c. Inventory refers to products that have been purchased for resale to customers. Michelle’s business does not have any products, but instead it provides a service,
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rafting excursions. Thus, the real product is not inventory but a service. The supplies on hand are similar to inventory, in that they represent goods that may be used up within one year. But the supplies are probably not SOLD to customers, instead they are used up as the company provides its’ service (e.g. drinks given to customers on the trip. The account name ‘inventory’ implies goods to be sold to the customers. d. Michelle’s business does not produce a product for which customers would be extended credit. Michelle would want her customers to pay in advance. Unlike a car dealership where the company can repossess the car if the customer does not pay, it would not be possible for Michelle to repossess a rafting excursion once it is complete. And the cost for the service is not that large so customers will be able to afford to pay right away. Thus, Michelle’s business is not likely to have an accounts receivable account. b . Call Of The Wild Ltd. Balance Sheet As at July 31, 2xxx Current assets: Cash $33,670 Supplies on hand 13,420 Total current assets $47,090 Non-current assets: Vehicles 38,400 Cost of tents/rafts 34,100 Total non-current assets 72,500 $ 119,590 Current liabilities: Amounts paid for trips in August $19,140 Total current liabilities $19,140 Bank loan 24,000 Total liabilities $43,140 Shareholders’ equity: Common shares $20,000 Retained Earnings 56,450 Total shareholders’ equity 76,450 $ 119,590 1-58 a. The use of the term “consolidated” means that the company has, at a minimum, a parent company and a subsidiary – a company that is controlled by the parent
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company generally through holding voting shares. Michelin has, in fact, many subsidiaries.
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